It's been a tough year for Urban Outfitters
Urban Outfitters' third-quarter profit actually dropped 7% to $34.5 million, or $0.21 per share. Net sales increased 7% to $308.4 million. Comps dropped 10%, with a strong showing from Free People, which increased 9%. Its same-store sales drop is compared to a 13% increase in overall comps this time last year.
Bear in mind that Urban Outfitters' third-quarter profit included a tax benefit. However, investors were likely buoyed by the fact that the company's earnings beat the consensus analyst estimate, which called for third-quarter earnings of $0.18 per share. (Its sales missed estimates, however.) Urban Outfitters' earnings per share were helped by both the tax benefit and the fact that the company has been repurchasing shares.
Inventories grew a mere 5.5%, mostly on account of stocking new stores, and comparable inventories dropped 13.2%. This is good news since inventory buildups dogged the company earlier this year. And while gross profit margin dropped to 38.2% from 41.6% last year, it improved if you look at last quarter, when gross profit margin was 36.7%. However, SG&A expense upticked by 21%.
It's been a tough year for historically premium-priced retail stocks like Urban Outfitters and Chico's
I'm an Urban Outfitters shareholder, and despite the tough year, I remain optimistic about this retailer's potential growth. It has three great brands that differentiate themselves well from much of the competition, and the Free People brand shows exceptional promise. It's also got tons of room for growth for years to come, since its store count is very low. (I like to use Gap as an example of a company that's not going to be able to coax much sales growth from store expansions, considering the fact that it has 3,000 stores compared to only about 200 for Urban Outfitters.)
Despite the rough year, Urban Outfitters head Richard Hayne said in the company's conference call that the company's not shying away from its long-term projections to grow sales at 20% or more per year and to return to its target 20% operating profit.
The fact that third-quarter profit and even sales growth left something to be desired wasn't exactly a surprise. But for those of us who are long-term shareholders, we're still waiting for a return to the good old days. Given some of the signs from the quarter -- plus management's indications that it's seeing better adoption of merchandise here lately, as well as having a better handle on "microfashion" -- it seems those of us who have been holding steady have good reason to believe that things are looking good for the long term at Urban Outfitters.
Here's more recent content on Urban Outfitters:
- Last quarter, all was not lost at Urban Outfitters.
- The retailer has, of course, experienced mean streets this year.
- Here's more on Urban Outfitters' awkward phase.